Stocks opened lower for the sixth straight session (Dow -63 pts; SPX -.5%). Utilities is the only sector in the green at the moment. Energy, financials, industrials and tech are all down. The VIX Index, a measure of investor fear, is back up to 22.5 and VIX futures are trading around 21.95. So a little bit of elevated fear in the near term trade. The dollar is stronger on the day despite some bearish comments from the Fed (see below) and commodities are mostly lower. WTI crude is down more than 3% to trade around $46/barrel. Bonds are rising today. The 5- and 10-year Treasury yields are down to 1.07% and 1.55%, respectively. It could very well be that global investors are bulking up on US Treasuries in front of the UK’s “Brexit” vote later this month.

The Federal Reserve issued a down-beat statement following its monthly policy meeting yesterday. The bottom line is that Fed officials downgraded their US economic outlook and pushed out expectations for future Fed interest rate hikes. It now appears to Fed Chair Janet Yellen that inflation will remain below the Fed’s target through 2017. She said some of the current economic headwinds are more persistent than previously expected. Ms. Yellen stressed that the central bank is not by any means on a “pre-set course” for rate hikes and must be patient. The 10-year Treasury yield fell from 1.61% to 1.58% in the wake of the announcement. The statement clearly spooked traders and the market dipped immediately. Former PIMCO Co-CEO Muhamed El-Erian, in a CNBC interview today, complained that “The Fed doesn’t have a clear vision of where the economy is going.”

The Consumer Price Index (CPI), a measure of inflation, rose .2% in May vs. prior month levels. Economists were expecting a bigger jump in prices. On a year-over-year basis, CPI is rising at a very tame 1.0% clip. However, if you strip out food & energy, so-called Core CPI is up 2.2% y/y. Housing and medical costs continue to trend upward.

The Fed, of course, has a 2.0% y/y target for Core CPI, so here we are: the Fed claims to be data-dependent in its policy decisions, and both the job market and inflation are back to levels that would suggest further interest rate hikes. But most investors and many economists seem to believe the economy isn’t on solid enough ground to deal with tightening monetary policy. And yesterday’s Fed announcement suggests the Fed agrees. My conclusion is that the Fed will put up with higher inflation for a while before resorting to more rate hikes.

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